CRUS Plunges 18%: Stifel Cuts to Hold, Ponders AAPL Impact

By Tiernan Ray

Shares of chip maker Cirrus Logic (CRUS) are down $3.87, or almost 18%, at $18.20, after the company this morning said during an appearance by CEO Jason Rhode at the Barclays Global Technology conference that it will deliver revenue this quarter as previously forecast of $150 million to $170 million, but that it sees longer-term gross margin“in the mid-’40s” versus the current 50% to 52% forecast for this quarter. The company cited “increased pricing pressure.”

The shares have received one downgrade so far, from Stifel Nicolaus’s Tore Svanberg, who cut his rating to Hold from Buy, and stripped away his $32 price target, writing “We are increasingly concerned about the uncertainty in Cirrus’s business model, given that Apple (AAPL), its largest customer, which represented 82.7% of Mar-Q revenue, is facing significant challenges and uncertainties of its own.”

“We believe the ever more crowded and competitive smartphone market could have a lasting impact on Cirrus,” adds Svanberg.

Svanberg cut this year’s estimates to $710.5 million and $1.73 per share in net profit from a prior $815.3 million and $2.85.

Essi sees further pressure on Cirrus’s chip prices, and opines that a lower-cost model of Apple’s iPhone, widely rumored for some time, could be partly to blame:

Citing a desire to align the GM structure among its peers did little to disguise the widely held investor belief that prices at Apple (85% of revenue MRQ) are heading lower. The smallest of silver linings is that CRUS hasn’t lost a socket with Apple and there were indications that a lower priced form- factor handset from Apple could be in the works (and a reason for the price declines). However, it brings into focus two major opposing forces that could keep the shares in a stalemate: 1) the potential slippery slope of further Apple price declines, (many examples from other suppliers), and 2) the absence of any material product offsets on the horizon outside of Apple […] Though perhaps part of the reason for these declines, it appears likely that a lower cost offering is in the works at Apple. This correlates with prior discussion regarding integration roadmaps for the amp product to cater to lower-end handsets.

Essi lowered his estimate for this year to $758 million and $2.35 per share from a prior $831 million and $3.25 per share.

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